Scott Reeder: Ambiguous rules make it tough for businesses

Wednesday

Feb 19, 2014 at 1:40 PMFeb 19, 2014 at 1:40 PM

SPRINGFIELD - Susan Clause is no quitter.

For 16 years, she and her husband, Stephen Briggs, have owned and operated a teacher supply store, Ergadoo, in Springfield. They love their business, and it's making money, but they are shutting it down this week.

Why? They say the state of Illinois has made it too difficult to operate.

It's a painful decision for the couple who founded the store 16 years ago. After all, they aren't quitters by nature. They fought to keep the doors open when Susan was fighting leukemia and Stephen was battling prostate cancer - at the same time.

And there have been tough days when they have found themselves unloading truckloads of merchandise by themselves or wading through reams of paperwork.

But now they are facing an obstacle they just don't want to deal with: the Illinois Department of Revenue.

Here's how Susan explained it:

"Five years ago, we received a sales tax audit from the state, and they said we were doing things just fine. And then we were audited again this year. And we were told we were doing things wrong. We can't operate if we don't know what the rules are."

For 10 days last month, a state auditor camped out at their store - sitting at one of those tiny little children's tables - reviewing three months of receipts.

And that's where the problem began.

You see, Ergadoo is the sort of business that has many nonprofits as customers - schools, churches, nurseries. Those types of organizations don't have to pay sales taxes.

So teachers, church secretaries and principals often come in bearing letters from the Illinois Department of Revenue declaring their organizations' sales tax exemptions. Susan and her husband dutifully record the transaction - along with their tax exemption number.

Sounds good, right?

Well, no. The Revenue Department says that's not good enough.

Clause said the Revenue Department told her it's her store's responsibility to determine where the customer's money comes from.

"How am I supposed to prove if someone comes in with a $20 bill and a tax-exempt letter whether that money is from a school's petty cash fund or someplace else? I can't. No one can," Susan said.

The reason behind the rule is to keep people from borrowing a letter from a nonprofit and stocking up on stuff for their own personal use. But like so much bureaucrats do, no common sense is being applied here.

Ergadoo sells things like multiplication tables, classroom bulletin board displays and those cheesy teacher posters. You know, ones like "Clock watchers, time will pass. ... You may not." And I'll go out on a limb here, it's hard to believe this sort of thing would be used any place but in a classroom.

But bureaucrats don't care.

After examining three months of transactions such as these, the auditor declared that the store owed $800 in back sales taxes.

"I told the auditor the state spent more to have you here for 10 days than it will end up collecting," Susan said.

Then the other shoe dropped.

"We were told the state would plug the findings of the audit into some sort of formula and come up with a tax bill for the last three years. We're guessing that will be about $8,000."

After the salaries they drew from their business, that is more than the store's profits for the last two years.

Fortunately, Susan and Stephen have an alternative - they are expanding the children's museum they operate next door, Ergadoozy, into the area the store is vacating.

But Springfield educators will now have to drive 70 miles to Peoria if they want to shop at a teacher supply store. Or more likely, they will buy online from some out-of-state firm, and Illinois will lose even more commerce.

Susan and Stephen are losing the business they have nurtured for 16 years. It doesn't make sense.

Stephen put it this way: "This is government. It's not supposed to make 'sense.' It's about dollars, and government trying to find a way to suck them right out of your pocket."

Scott Reeder is a veteran statehouse reporter and the journalist in residence at the Illinois Policy Institute. He can be reached at sreeder@illinoispolicy.org. Readers can subscribe to his free political newsletter by going to ILNEWS.ORG or follow his work on Twitter @scottreeder.